As you’ve likely heard, Mitt Romney was recorded at a fundraiser saying “there are 47 percent who are with [President Obama], who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it […] These are people who pay no income tax.”
The right is splitting over whether or not the 47 percent argument is worth defending. It’s important to understand that, while it is true that 47 percent of households don’t pay federal income tax, the distribution of the tax burden isn’t what the 47 percent theory is about. The 47 percent theory is all about grand political battles. My colleague Mark Schmitt has one examination of where this theory comes from here, Brian Beutler also investigates the background of the 47 percent meme, and Kevin Drum offers a history of the Earnd Income Tax Credit here.
Digging into different arguments, there are two distinct parts to a good 47 percent theory. The first is who creates and sustains the 47 percent as a political agent. This can’t be the bipartisan set of policymakers who wanted to provide income support through work requirements as well as expand certain credits, particularly the child credit; it needs to be agents with specific, outside political goals. Those who pay little or no income tax are a coherent group that acts like a special interest or a class. Instead of the young and the old, as well as the working poor moving into and out of the EITC, this group of people is stable enough that it can act as a coherent political class, but it needs to be created and sustained. Who made it?
Let’s start at the beginning. Where does this meme start?
1. Trickle On Trickle Down: The Lucky Duckies of the Wall Street Journal Editorial Page: Let’s look at the Wall Street Journal‘s opinion page, November 20, 2002, “The Non-Taxpaying Class: Those lucky duckies”:
“Who are these lucky duckies? They are the beneficiaries of tax policies that have expanded the personal exemption and standard deduction and targeted certain voter groups by introducing a welter of tax credits for things like child care and education […] The 1986 tax reform, for example, with its giant increase in the personal exemption and standard deduction, took six to seven million people off the tax rolls […] This complicated system of progressivity and targeted rewards is creating a nation of two different tax-paying classes: those who pay a lot and those who pay very little. And as fewer and fewer people are responsible for paying more and more of all taxes, the constituency for tax cutting, much less for tax reform, is eroding. Workers who pay little or no taxes can hardly be expected to care about tax relief for everybody else. They are also that much more detached from recognizing the costs of government.
All of which suggests that the last thing the White House should do now is come up with more exemptions, deductions and credits that will shrink the tax-paying population even further.”
This argument was developed in future editorals. A few weeks later, in “Lucky Duckies Again: Look at who won’t pay taxes under Bush’s plan”, the Journal noted that “No doubt the Bush team proposed this tilt toward lower income taxpayers to mute the class-warrior critics, not that we’ve noticed any lower decibel level.”
Who? Interestingly enough, this looks like an internal fight among conservatives and Republicans. That’s how Krugman read it at the time, and it seems obvious from that last sentence. The Bush tax cuts are going to be across all families, and the editorial is warning that this is the wrong approach. It should focus just on the rich, corporations, and capital income holders. The editorial is clear that they don’t want to raise taxes on those who are exempted from the federal income tax; they just fear that these across-the-board tax cuts will knock a lot of people out of the system.
This was a correct assertion, as this number skyrocketed after the George W. Bush tax cuts. To whatever extent the Bush team didn’t want to do this, they felt boxed in politically. As a top Bush administration official later told Ezra Klein, “Do you think we wanted to include a welfare payment to people who don’t pay taxes and call it a tax cut? No. But that’s what we needed to do to get it done.”
Consequences? The editorial warned that this policy would buy them no room with the “class-warrior critics,” and that’s probably a fair assessment. Repealing the Bush tax cuts has been a consistent goal for Democrats, and their preferred approach is even worse than the Wall Street Journal could have imagined. The Journal just wanted tax cuts on those making over $250,000, and warned about cutting at the bottom end of the spectrum because of the lucky duckies. Now the situation is reversed, and President Obama is looking to keep the tax cuts for those making under $250,000 and repeal the rest.
There’s the idea that as a policy matter workers will simply not care for cutting taxes or for tax reform more broadly. This is why Romney can say “So our message of low taxes doesn’t connect.” But this isn’t played up in apocalyptic terms. The editorials seemed more concerned that the federal tax code will retain its progressivity under this tax cut, rather than the lucky duckies initating a new culture war. This is in stark opposition to: